European Business News (EBN), 97-07-21

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From: The European Business News Server at <http://www.ebn.co.uk/>

Page last updated Mon, July 21 5:41 PM CET

CONTENTS

[01] Vereinsbank and Hypo-bank announce $17 billion merger plans

[02] Boeing second quarter profit falls 15% on year

[03] AT&T profit tumble 38% in the second quarter

[04] Strauss-Kahn: France will cut deficit to GDP ratio by 0.4% in 1997

[05] Siemens posts 3% rise in earnings; 10% increase in sales

[06] Fiat to invest $1 billion in India

[07] Norsk Hydro posts 4% drop in earnings for first half

[08] German producer prices rise 0.1% in June; above analysts' expectations

[09] United Utilities CEO leaves after 'losing the confidence of the board'

[10] First Union to buy $3.25 billion Signet Banking

[11] Adidas poises to leap into Dax 30-share index

[12] Germany's M3 supply expanded at annualised 6.4% in June

[13] Corporate and Economic Briefs

[14] World News Briefs

[01] Vereinsbank and Hypo-bank announce $17 billion merger plans

The combination in the continent's largest market would underscore the consolidation now under way in European banking, and would add to the already strong pressure on European financial institutions to merge. But sources said that the proposed merger of Bayerische Vereinsbank and Bayerische Hypobank will mean job cuts of between 5,000 and 7,000 over the next five years.

The newly combined German bank, with assets of 742 billion marks, would be the second-biggest bank in Europe, according to the most recently available figures. Deutsche Bank, with assets of 886 billion marks, is currently the biggest, followed by France's Credit Agricole, with assets of 735 billion marks.

The merger would help to boost the international presence and visibility of the banks. Vereinsbank has been in the U.S. for decades, with offices in New York, Chicago, Los Angeles and Miami. Two years ago, it unsuccessfully sought to acquire Oppenheimer & Co., a New York brokerage firm. Hypobank also has an office in New York.

The architect of the transaction is J.P. Morgan & Co., which came up with the idea of merging the two institutions and is advising both banks. Such a dual advisory role, which in the U.S. would be viewed as a conflict of interest, isn't prohibited under German law. A spokesman for J.P. Morgan declined to comment.

A merger of the two has been speculated on for more than a year, mostly because of its obvious logic. Both are based in Munich, the capital of the rich German state of Bavaria, and a combination of the two 'has the advantage of the greatest restructuring potential' of any deal in German banking, according to a report published in January by Westdeutsche Landesbank analyst Stefan Ermisch. He estimated that the banks could cut 20% of their employees, 25% of their branches and generate total cost savings of 6.8 billion marks.

Germany is one of Europe's most overbanked countries, and German banks are eager to streamline before the 1999 introduction of the European single currency. Germany has one bank branch for every 2,154 inhabitants, nearly twice as many as in the U.S. or Britain. Adding to the pressure on Germany's once highly protected and insular banking community is the invasion of U.S. and other foreign institutions.

[02] Boeing second quarter profit falls 15% on year

The results for the quarter ended June 30, the last before Boeing's planned merger with McDonnell Douglas, showed profit of $399 million or 55 cents a share, compared with $468 million or 68 cents a share in 1996.

Last year's second-quarter was inflated by a $176 million gain for the settlement of some defence and space contracts.

Boeing's results were short of analysts expectations by about a nickel per share. Sales were $9.3 billion, up 48% from $6.3 billion in second-quarter 1996, primarily due to more commercial jet deliveries and Boeing's acquisition late last year of Rockwell International's defence and space business.

In the most recent quarter, Boeing delivered 92 jetliners, compared with 62 a year earlier. Boeing is increasing its commercial jet production to meet airline demand and currently produces 30 jets a month, up from 22.5 a month at the start of the year. A year from now, it plans to be producing a record 43 each month.

Phil Condit, Boeing chairman and chief executive said troubles keeping up with the rapid expansion is hurting productivity. Boeing is working to improve efficiency and reduce the amount of time it takes to build an airplane, he said.

For the first six months of the year, Boeing had profits of $712 million or 99 cents a share on sales of $16.6 billion, compared with net earnings of $587 million or 85 cents a share on sales of $10.6 billion a year earlier. Boeing and McDonnell Douglas shareholders vote Friday on whether to merge into the world's largest aerospace company.

Last week, McDonnell Douglas reported quarterly profits of $195 million, or 93 cents a share, on revenues of $3.56 billion, compared with earnings of $188 million, or 87 cents a share, on sales of $3.26 billion a year ago.

[03] AT&T profit tumble 38% in the second quarter

AT and T said it earned $959 million, or 59 cents a share, in the quarter ended June 30. That was down from $1.54 billion, or 95 cents a share, in the year-ago period, excluding results from AT and T's underwater cable unit, which it has since sold.

Revenues rose 2.4 percent to $13.17 billion from $12.87 billion.

The sluggish results come less than a week after AT and T president John Walter, touted as AT and T's future leader, quit amid criticism he wasn't moving fast enough to turn around America's largest long-distance company.

While the results slightly beat the average expectation of Wall Street analysts surveyed by IBES International, who forecast a profit of about 58 cents per share, AT and T chairman Robert E. Allen expressed disappointment.

Allen said 'we're certainly not pleased with the year-over-year decline in our earnings.'

Revenue from AT and T's core long-distance business grew only 1.5% to $11.582 billion, dragged down by competition for customers with price breaks and other promotions. The slow growth came despite a 9.7% increase in calling volume.

Revenue from long-distance services aimed at consumers dropped slightly by $50 million to $5.98 billion.

AT and T's credit-card division had a 16.3% revenue decline to $351 million.

AT and T cited the persistent high costs of breaking into local phone markets, blaming foot-dragging by the regional phone companies in striking agreements to enable AT and T's entry. The company also blamed higher-than- expected costs of breaking into markets outside the United States.

For the first half, AT and T earned $2.08 billion, or $1.28 per share, on revenues of $26.22 billion. That was down from $3.01 billion, or $1.87 a share, on revenues of $25.72 billion, in the year-ago period.

[04] Strauss-Kahn: France will cut deficit to GDP ratio by 0.4% in 1997

As reported a public finances audit showed the deficit running between 3.5% and 3.7% of GDP.

In order to cut the deficit, the government will raise corporate income taxes to 42% from 36.6% and will increase long-term capital gains taxes to 42% from 19%. Those tax increases are expected to raise 22 billion francs ($3.62 billion), Strauss-Kahn said. In addition, Strauss-Kahn said the government would cut 10 billion francs in spending this year, beginning with a 2 billion francs cut in defence investment spending.

Though Strauss-Kahn repeated that France would join the single currency on time, on Jan. 1, 1999, he declined to give a deficit-to-GDP target of 3.0% for 1997.

Responding to whether a deficit ratio between 3.1% and 3.3% would be acceptable to Germany, which has long called for strict adherence to a 3.0% deficit ratio level, Strauss-Kahn said France's deficit position would be the same as its European Union partners' in 1997.

For 1998, however, Strauss-Kahn said France would have a 3% deficit ratio, as would its E.U. partners. France must reduce its current deficit ratio in order to fulfil a Maastricht Treaty criterion on joining the single currency. That criterion calls for countries entering European economic and monetary union to have a 3% deficit-to-GDP ratio.

Budget Minister Christian Sautter later told a press conference that the 1997 budget gap is projected by the auditors to come in at between 312 billion francs and 322 billion francs ($51.45 billion and $53.01 billion), compared to the 285 billion francs set out in the previous government's 1997 draft law last autumn.

The slippage of between 27 billion francs and 37 billion francs is due to lost fiscal revenue of between 15 billion francs and 17 billion francs, and additional public spending of between 12 billion francs and 20 billion francs.

[05] Siemens posts 3% rise in earnings; 10% increase in sales

Sales in the first nine months of the business year that ends on September 30 rose to 71.2 billion marks ($39.77 billion) from 64.5 billion marks.

The group said that around 2% of its 10% rise in sales was attributable to foreign exchange rates.

The chairman of Germany's Siemens, Heinrich von Pierer, told Dow Jones that group net profit in the current fiscal year will be slightly higher than the 2.49 billion marks, excluding extraordinary items, posted in the previous year. Siemens fiscal year ends Sept. 30.

In fiscal 1996, Siemens sold off the high-speed printer operations of its Siemens Nixdorf subsidiary which brought its total group net profit to 2.99 billion marks . The comparison excludes this extraordinary gain.

Von Pierer also reiterated the group's net profit will grow in fiscal 1998. He declined to be more specific, saying it's hard to estimate from this point in time. The rise in nine-month net profit comes despite previous forecasts for a flat profit in the full year

Siemens reported its nine-month figures in Berlin. Nine-month group net profit rose modestly to 1.71 billion marks from 1.65 billion marks

[06] Fiat to invest $1 billion in India

Paolo Cantarella, the chief executive told a meeting of Indian businessmen that the group's main projects include a new car plant in the western state of Maharashtra, a tractor plant in the central Indian state of Uttar Pradesh and a second factory to make trucks in the southern state of Tamil Nadu, near an existing Fiat group truck plant.

He said the new car plant, which will make 100,000 cars a year, will begin production by the end of 1999.

Fiat has a long-standing cooperation agreement with Indian car maker Premier which recently launched the Italian group's Uno car model. The Fiat group's new car plant in Maharashtra will also be in collaboration with the owners of Premier.

Cantarella said Fiat will also make other investments in India such as setting up a car components plant in Pune, western India, by Magneti Marelli, a group company.

Another group company, Comau India, will make equipment for automobile plants, he said.

In another project, the Fiat group, along with Kalyani group of India, will set up a plant in Goa to make cast iron automotive components.

Fiat also plans to set up a training center for Indian students to learn technological and managerial skills and plans to invest in two existing technical schools in New Delhi and Bombay.

[07] Norsk Hydro posts 4% drop in earnings for first half

Lower profits in associated companies and higher financing costs pulled pretax profit down to 5.87 billion kroner ($792.5 million) from 6.14 billion the same year-earlier period. Norsk Hydro's operating profit however jumped 4% to 5.96 billion kroner from 5.75 billion.

The company mainly cited better earnings from oil and gas, petrochemical and light metals divisions. Norsk Hydro' president and chief executive officer Egil Myklebust said the result confirms a positive trend from the first quarter this year.

'Several divisions have put into effect initiatives aimed at reducing costs, while other cost-reduction programs are about to be introduced,' he said. The only division not to see an increase in operating profit was agriculture where it dropped to 1.40 billion kroner in the first half from 1.76 billion. The division's second quarter operating profit was 543 million kroner, down from 866 million. The sharp 37% decline was mostly due to lower nitrogen fertiliser prices, the division's main product, and higher raw material costs.

[08] German producer prices rise 0.1% in June; above analysts' expectations

The price index is above analysts' expectations. German producer prices were estimated to have fallen 0.1% in June from May and to have risen by 1.3% from June 1996, according to a survey of analysts by Dow Jones.

In western Germany alone, producer prices in June rose 0.1% from May and 1.3% from a year earlier, the Statistics Office reported. Among the higher prices compared with May were those for electrical copper, up 7.5%, heavy heating oil, up 5.8%, and cocoa products, up 3.5%.

In eastern Germany, producer prices declined 0.2% in June from May but rose 2.2% from a year ago.

Incoming orders to German manufacturers in May fell more than originally reported, the Deutsche Bundesbank said.

The Bundesbank revised the index of new orders to German industry down to 101.9 from the 102.6 originally reported by the federal economics ministry at the beginning of July. That means that orders dropped 1.3% on the month, compared with a previously reported drop of 0.8%.

[09] United Utilities CEO leaves after 'losing the confidence of the board'

Derek Green, currently managing director of the Utility division, has been appointed to chief executive. The company also said its current trading position, although slightly below market expectations, is 'satisfactory'. United's shares have retreated on the back of the weak trading conditions, dropping 35.5 pence at 732.5 pence.

The company said Derek Green would remain with the firm until 2000 following the conclusion of price reviews in the water and electricity sectors and Britain's transition to a competitive energy market. Last month, United Utilities disappointed the market by reporting a lower-than-expected annual pretax profit of £444 million ($745.4 million) before exceptionals compared to £389.2 million the previous year.

[10] First Union to buy $3.25 billion Signet Banking

The combined banking company would be the largest in Virginia and the second biggest in the region that includes the nation's capital.

The deal announced Monday underscores the consolidation trend within the banking industry and the dealmakers expect it to add to earnings as early as next year as First Union slashes Signet's expenses.

The purchase of Richmond, Virginia-based Signet would boost First Union's assets by $12 billion to $155 billion.

First Union, based in Charlotte, North Carolina, already has offices in 12 states from Connecticut to Florida.

The deal comes after First Union rival Wachovia Corp. engineered a large number of transactions in Virginia. Under terms of the latest deal, each Signet share is to be traded for 0.55 share of First Union stock.

Based on First Union's closing stock price Friday, the transaction would represent an exchange value of $53.59 for each share of Signet common stock.

The offer represents a hefty 46 percent premium over Signet's closing value of $36.6875 on Friday.

'This is a financially driven combination that will give First Union a leading position in very attractive markets,' said Edward E. Crutchfield, chairman and chief executive of First Union.

The companies expect the merger will boost earnings next year and beyond.

They said they expect to cut Signet's annual expenses by 50 percent, or $242 million, and boost revenue by at least $ 37 million simply as a result of First Union offering its financial products and services to Signet customers.

First Union expects to charge $135 million against its earnings after taxes this year for restructuring as a result of the merger.

The deal is subject to approval by Signet shareholders and regulators.

Following the merger, Signet chairman and chief executive Malcolm S. McDonald will become chief executive of First Union's Virginia, Maryland and Washington, D.C., region.

[11] Adidas poises to leap into Dax 30-share index

Adidas is considered the top candidate to join the 30-share index on Tuesday when German stock exchange operator Deutsche Boerse and a group of German banks meet in Frankfurt for the annual review of the DAX portfolio.

Any changes to the DAX composition are expected to be announced on Tuesday afternoon. They take effect in September.

'Logic speaks for such a move but you never know what will happen,' said Michael Wand, a retailing industry analyst at Paribas Capital Markets in London, who gave Adidas an 85% chance of making it into the blue-chip index.

Adidas has declined comment on the process, which can sometimes be a political decision as banks on the panel push their favourite candidates, even ones in which they own shares.

Reuters

[12] Germany's M3 supply expanded at annualised 6.4% in June

The June growth rate is slower than the 7.0% expansion in May, and lower than the 6.8% forecast by economists.

The German central bank said in a statement that cash in circulation nonetheless increased significantly in the month.

The Bundesbank said the 'significantly weaker' M3 growth in June was due to a slowdown in bank lending and a slightly faster rate of capital formation.

[13] Corporate and Economic Briefs

Italian Treasury Minister Carlo Azeglio Ciampi confirmed that a supplementary budget of some 25.0 trillion lire will be necessary for Italy to meet its 1998 budget deficit objectives, according to Italian news reports. Ciampi's comments come after Piero Giarda, an under-secretary to the Treasury Ministry, indicated over the weekend that 'the figure may be closer to 28 trillion ITL.' Ciampi noted that some 3.0 trillion ITL in additional investments called for by parliament will be compensated for in equal measure by further reductions in spending, according to Monday's Italian daily, La Repubblica.

Consumer prices in Austria in June were unchanged from May and up 1.2% from a year earlier, the lowest annual inflation rate since 0.9% in April 1987, the Central Statistics Office reported. The figures show inflation slowed down from May, when the revised consumer price index showed prices rose 0.1% from April and 1.5% from a year earlier, the agency said.

Spain's 1997 six-month accumulated budget deficit was a rounded 1.2 trillion pesetas ($7.93 billion), down 15% from the same period a year ago, said secretary of state for the budget Jose Folgado, according to the Spanish financial daily newspaper Cinco Dias. While a Finance Ministry spokesman couldn't confirm the data published in the Cinco Dias article, the spokesman said Folgado had been scheduled to speak at a tax seminar over the weekend in Santander. The same newspaper article said Folgado noted June showed a deficit of 280 billion pesetas, down 29.2% from the same month in 1996.

Sweden's current account showed a deficit of 1.5 billion kronor ($192.9 million) in May, compared with a surplus of 200 million kronor in May 1996, according to figures released by Sveriges Riksbank, the central bank of Sweden. Market economists had been expecting a surplus of 500 million kronor in May, according to the Riksbank. The May deficit brought the annualised current account surplus for the past 12 months to 38.3 billion kronor, down from a 43.6 billion krona surplus in the previous 12-month period, the Riksbank said. In April this year the current account surplus was 5.1 billion kronor.

BZW, the investment banking arm of Barclays, said its deputy head of propriety trading Mike Gaeton has resigned. Gaeton's departure, follows reports that BZW is facing heavy losses after misjudgements on the stock market. According to local news reports, BZW is though to be one of several investment houses that miscalculated the impact of the Labour government's first budget on the stock market earlier this month. BZW is also being investigated by the U.S. Securities and Exchange Commission for allegations that it improperly absorbed trading losses caused by client errors last year. A spokeswoman for BZW declined to comment on the circumstances of Gaeton's departure.

France Telecom said that the Senegalese government has selected the company to acquire 33.3% of Senegal's state-owned telecommunications company Sonatel for 650 million francs ($107.3 million). The acquisition is the first step by Senegal's government to privatize its telecommunications industry. France Telecom said it would help Sonatel quadruple Senegal's telephone network capacity within 10 years and prepare for competition in the mobile phone segment. It estimated the project, which entails building more than 300,000 additional phone lines, will require an investment of nearly 2 billion francs.

Dyno Industrier, a Norwegian explosives and chemicals company, posted a 40% jump in pretax profit for the first half to 262 million kroner ($35.4 million). The company said its performance was boosted by good sales in several key markets and better returns from its core explosives division due to a profit improvement programme which the company introduced two years ago. Group operating revenue rose 17% to 5.531 billion kroner, while return on capital also did better, up to 11.2%, compared with 10.1% in the first six months of last year.

[14] World News Briefs

Anti-Taliban soldiers dug in north of Afghanistan's beleaguered capital, a day after wresting control of a key town and moving within rocket range of Kabul. An opposition alliance swept into Charikar, about 60 kilometres (40 miles) north of Kabul on Sunday. Largely deserted because of recent fighting, Charikar, capital of Parwan province, is considered strategically important because it is within rocket range of Kabul. The Taliban religious army seized Kabul on Sept. 27 and controls the southern two thirds of the country, where it has enforced its strict version of Islamic rule - prohibiting women from working or going to school and ordering men to pray regularly and grow beards.

Northern Ireland was reported quiet after IRA guerrillas formally halted their guerrilla war against British rule to gain a voice in peace talks. Sinn Fein, the Irish Republican Army's political wing, said the start of the ceasefire at midday on Sunday marked 'a momentous day,' following 28 years of sectarian and political conflict that cost 3,200 lives. But angry pro-British Unionists accused Britain of winning a truce, which Protestant politicians believe will prove to be simply cosmetic, by backsliding on a key demand for the surrender of IRA weapons. British Prime Minister Tony Blair is to meet powerful Protestant leader David Trimble in London to try to keep his Ulster Unionist Party within a peace process now set to be joined by Sinn Fein.

Rival Cambodian forces clashed over a key northwest town but government officials denied it had been retaken by troops loyal to ousted First Prime Minister Prince Norodom Ranariddh. Reports of overnight clashes in strategically placed Samrong, about 30 km (20 miles) from the Thai border, came as Second Prime Minister Hun Sen moved to formally replace Ranariddh as co-premier two weeks after a bloody coup. A Thai army officer based in northwestern Thailand near the border with Cambodia said that Samrong was now in royalist hands. Hun Sen forces entered the town on Friday and government officials claimed they controlled it by Sunday.

The new U.N. chief weapons inspector, Richard Butler, said Sunday night in Bahrain that Iraq should see a change in how it is treated by his new administration.

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